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Seliger co-authors Small Business Tax Relief Act

Nearly half of the state’s businesses could see their franchise tax obligation eliminated if a bill co-authored by state Sen. Kel Seliger, R-Amarillo, passes.

The Small Business Tax Relief Act (SB 575) would increase the franchise tax revenue threshold from $1.11 million to $4 million, lifting the burden from some 62,000 Texas businesses.

Sen. Charles Schwertner’s bill, filed on Jan. 23, mirrors past bills hoping to help mom-and-pop shops save thousands of dollars. Seliger also signed off on SB 8, an identical bill Schwertner, R-Georgetown, filed as part of a tax relief package during the 2015-16 legislative session. The bill passed the Senate before dying in the House Committee on Ways and Means.

The legislature already has 2.7 percent less in state funds, the result of weak oil and gas sales and assorted tax cuts over the last two years. But Seliger said the state’s limited funds didn’t mean more cuts shouldn’t occur.

“It’s always a good year for good, sound tax policy,” he said. “This simply raises the threshold and provides protection for small businesses.”

Retail outlets and wholesale vendors lose 0.375 percent of their annual revenue in the state’s current franchise tax model, or a minimum of $3,750. All other businesses pay 0.75 percent, a minimum of $7,500.

The minimum tax amount under the Small Business Tax Relief Act would soar to $15,000 and $30,000, depending on the field. The franchise tax was previously cut from 0.475 percent and 0.95 percent in 2015.

Businesses paid $2.85 billion in franchise taxes during Fiscal Year 2016, according to data from the state Comptroller’s office, which calculated the tax will yield 5.6 percent of the state’s 2017-18 general fund. Only sales taxes and motor vehicle sale/rental taxes will compose a greater percentage.

The Comptroller’s Office estimates more than 62,000 statewide businesses would be exempt from paying franchise taxes if SB 575 passes. Seliger is among 14 senators, including two Democrats, to sign Schwertner’s bill.

The tax’s base in revenue, not profit, means small business owners in high-priced areas pay a greater percentage of their income than those in economically repressed regions. Texas Panhandle businesses most likely to be affected by an increased threshold include manufacturing, medical enterprises and those involved in oil and gas extraction, said Gina Woodward, director of the Amarillo Small Business Development Center.

“Very few have to pay it, (but) the ones that do have to pay it, it affects them greatly,” Woodward said.

Woodward said she supports lifting the revenue threshold to $4 million in principle, but wanted to know how state programs would be affected.

“Any time you eliminate or reduce a tax, you have the flipside, and that’s the money is supporting a state agency or organization,” she said. “You have to make sure you’re not affecting the quality of service elsewhere.”

The National Federation of Independent Business claims 57 percent of Texas chapter respondents paid the 2013 franchise tax despite not making a profit. All but four percent of 21,000 NFIB/Texas businesses have 40 employees or fewer.

Although the Amarillo Economic Development Corp. makes headlines for attracting corporations like Hilmar Cheese, it also funds the West Texas A&M Enterprize Challenge and runs an Interest Rebate Program for businesses earning $2 million per year or less.

AEDC senior vice president of financial services Doug Nelson said Amarillo’s small businesses environment, which recently ranked 21st out of 200 metropolitan areas across the U.S., would only be helped by statehouse tax reductions.

“We in this community are very pro-business, and it would help small businesses in terms of the amount paid to the state,” Nelson said. “For small businesses, it’s a terrific addition to the tax code.”